Small Changes Make Big Difference

Last week, I completed the open enrollment process at work. It’s so important to really understand your work benefits. Because I had no idea that my company adds money each pay period into my HSA, I didn’t spend the five minutes necessary to fill out the single-sheet form with my HSA account info. So I missed out on $180 in my ignorant state. That’s nothing to sneeze at. That amount could have covered a couple of annual exams, at least. Oh, well. Lesson learned. I took the five minutes to fill out the form this time.

This weekend, I got a little head start on my quarterly financial review and reviewed my Financial S.M.A.R.T. goals.

  • Bad news: I still have a ton of debt, mostly from grad school loans.
  • Good news: I’m two-thirds of the way toward my emergency/Life Happens fund goal. The act of directly depositing part of my paycheck into savings in addition to putting away small windfalls has made a significant impact.
  • Discovery: Freedom from consumer debt is just 18 months away! Just 18 months! Totally doable!

I was initially afraid of the total balance of my credit cards. On my S.M.A.R.T. goals spreadsheet, I aimlessly wrote “Pay off consumer credit card debt by end of 2015.” The calculator helped me figure out that I could put just $72 more toward those balances each month, and freedom could be mine at the end of 2015. I’ll post a calendar on my fridge to keep me on track.

With all the talk of the government’s new student loan repayment plan, I decided to check out my federal loan repayment plan. I’m on the extended fixed plan. So I have up to 25 years to pay off my loan and my bill won’t change. The plan is to pay more than what’s required each month to chip away at the very, very large balance. It won’t take 25 years to pay it off. I refuse.

I basically use the exact same system to pay and keep track of bills as MoneyNing’s Travis Pizel. Certain bills are allocated to each payday. So I pay my bills on two days of the month. Those two mornings are exhilarating. Really.

A few months ago, I realized that I needed to pay my federal loan bill with the previous paycheck instead of the one I immediately get a few days before payment is due. I’d drown if I hadn’t made that small change. This plan gives me peace of mind until the next set of bills are up. I’m currently on track to make an extra payment this year, which I hope helps out with the interest accrued and eventually make a dent in the very, very large balance.

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Knowledge = Power: Personal Finance Education Yields Empowerment

Personal finance writer Kimberly Palmer has tackled another element of the Gen Y-money relationship: Our “financial optimism.” Those in a survey said they think they will eventually find their footing and establish a standard of living at least as good as the one they enjoyed growing up with their parents. Well, in my case, I hope to enjoy a lifestyle better than the one I had growing up.

These parts in the article stood out to me:

The survey found that the most successful Gen Yers tended to have parents with higher expectations and stronger financial education backgrounds than their peers who struggled more with money. The high-functioning group also tended to have taken multiple financial literacy classes throughout their high school careers as well as taught themselves more about money through online resources. “The young people who are taking a proactive approach to managing their money are light years ahead of those who are disinterested,” Serido says.

The groups that struggled more with their finances had less education and also less confidence, she notes. “They don’t think they know anything. They also perceive that they don’t have control over how money works. That’s what education does. … Just becoming informed gives you a sense of empowerment and ability,” she says.

Isn’t that awesome?! It’s true. Educating myself and, more importantly, applying what I’ve learned has been very much empowering.

Just at lunch today, my serpentine belt broke on my car. I’m not freaking out because I know I have the money to pay for that repair. Why? Because financial experts kept screaming, “BUILD AND EMERGENCY FUND!” So I went to my HR department to set aside savings from my paycheck to build an emergency fund.

KNOWLEDGE + ACTION = POWER!

 

 

 

Open Enrollment Alphabet Soup: What’s an HSA Again?

ImageHSA. FSA. ABC. 123.

Every year, I have to re-learn the health plan-related acronyms being tossed around at the company-wide open enrollment meeting. Since we’re on a High Deductible Health Plan (HDHP), I can use a Health Savings Account (HSA) to get a grip on medical bills. Having an HSA will help pay for the out-of-pocket expenses that the insurance plan doesn’t cover until the higher deductible is met…so I’ve read. My company will give me a lumpsum of money at the beginning of the period and an additional $10 each pay period. Free money! Yay!

ImageThe HSA account belongs to me, even if I change jobs. Although I opened an HSA at a credit union when I joined the company, I haven’t used it to my advantage. Shame on me.

ImageAt my old job, I had a Flexible Spending Account (FSA) or “use it or use it” account. If I remember correctly, I allotted a certain amount of money at the beginning of the year. I was able to use the full amount right then. The allotment was broken down into payments that was deducted from my check each pay period. Basically, my company gave me a lumpsum of money, and I paid them back in installments throughout the calendar year. I was able to use my FSA to pay off my braces in full before I left that job even though I’d be sporting a grill full of steel well after.

Both the HSA and FSA allow you to set aside pre-taxed dollars each year to pay for eligible healthcare expenses during the plan year. You save by not paying taxes on this money. The FSA let’s you spend money during the plan year, while the HSA let’s you roll over funds year after year and earn interest for future expenses.

Here are the main differences between the two accounts, according to Blue Cross Blue Shield.

Health Savings Account (HSA)

  • You can only have an HSA if you enroll in a high-deductible insurance plan.
  • You own the account. You can set it up with any bank of your choice.
  • Anyone, including your employer and relatives, can put money into the account.
  • Money taken out of your paycheck by your employer for the account isn’t taxed.
  • Money put into the account that’s already been taxed (for example, money that was a gift), is tax deductible.
  • Money in the account can roll over from year to year. (No “use it or lose it” rule.)
  • You can invest the money.

Flexible Spending Account (FSA)

  • The employer owns the account, but you get to decide what qualified medical expenses to pay from your FSA. The employer sets up the account.
  • Only you and your employer can put money into the account.
  • You can only deposit money into your FSA through payroll deduction. That money isn’t taxed.
  • Some employers let you carry up to $500 into the next year. Otherwise, any money left in the account at the end of the year goes back to your employer. (“Use it or lose it.”)
  • You can’t invest the money.

Here’s a helpful comparison chart of the FSA, HSA and HRA from Bank of America. Here’s a hypothetical example of savings:Screen Shot 2014-06-12 at 2.55.31 PMI think I finally have a grip on this. Let’s hope I won’t be staring blankly at the meeting next year.

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Money attitudes and money scripts

Wow. I haven’t posted anything in six weeks. That’s probably because I was feeling a bit pessimistic. Mmmm… Does that mean I only blog when I’m happy?

So I’m changing my attitude, and I’m going to start reading more about personal finance, and jotting down notes and thoughts on this blog. Alexa Mason wrote: “Reading frugality-related material is a great way to motivate yourself and find fresh ideas.” It’s one of the ways to constantly improve yourself.

I haven’t read a personal finance book since March, but I check out items in my “Financial Fitness” Twitter list almost daily. The past four days, I’ve been going through the MoneyNing archives. One of my recent favorites – How To Figure Out Your Money Script and Change the Way You Look At Money – cites Anne Kates Smith of Kiplinger about the importance of journaling:

“Keep a journal, jotting down thoughts that pop up in any given financial situation. The scripts are there, subconsciously driving behavior. Journaling slows the process, and it captures patterns in your thinking. Once you’re aware of the patterns, you can work on changing them. Say you’ve had a bad day at work and your first impulse is to go shopping. Journaling puts some time between the impulse and the action, allowing you to make a conscious decision to, say, spend time with friends instead.”

In that post, Emily Guy Birken wrote that the four scripts are as following:

  1. Money Avoidance | Other common scripts in this category include “I don’t deserve this inheritance” or “Rich people are unethical or evil” or “It’s not okay to have money when others go without.” These scripts are based upon the idea that money is a source of anxiety, fear, or disgust — and that living with less money is a kind of virtue.
  2. Money Worship, on the other hand, is based on the idea thatmoney can lead to happiness and fulfillment. Common scripts in this category include “I’ll be happy if I have more/spend more money” and “You can never be too rich.” If you follow Money Worship scripts, it can lead to things like workaholism, compulsive spending, or hoarding.
  3. Money Status scripts conflate net worth with self-worth. If you have Money Status scripts, you might think “Success is measured by how much money I make” or “My possessions reflect my importance and worth.” Individuals with Money Status scripts will often be vulnerable to debt (because they feel the need to keep up appearances) and get-rich-quick schemes (since they want a shortcut to that feeling of self-worth).
  4. Finally, Money Vigilance scripts tend to be fairly helpful, rather than harmful. Individuals with these scripts will think“Saving for the future is important” and “I have to research all purchases to make certain I get the best deal.” While these scripts can generally help your finances, if taken too far, they can have a negative effect on your psyche.

Interesting. Before this year, I was didn’t have a script that fit into these categories. I wasn’t actively thinking about money. Now, I’m proud to say that I can check off the Money Vigilance box.

I have to be super vigilant this week. After paying bills Friday, I put $150 back into my savings. I had borrowed against myself in a rough patch. The “disposable income” (because no income is really disposable) has been cut down a bit, but I was so happy to see that savings account balance move up.

For the next two weeks, I’m going to challenge myself to live off the $200 cash I withdrew from the bank. The cash-only system will keep me in check because I can see a finite amount of money leaving my hands – something I can’t do with a debit card. A large chunk of that money – $70 – is already going to my hairstylist Tuesday. I’m optimistic that I can handle this. It’s only two weeks. Cheers to the frugal life.

Here are some other MoneyNing articles that I enjoyed reading:

  1. 7 Frugal Habits Everyone Should Develop
  2. How to Motivate Yourself to Better Finances in the New Year (Pick something that matters + Measure your progress + Hold yourself accountable)
  3. Find Your Frugality with These 5 Easy Tips
  4. Why Frugality is Hard For You (And What to Do About It) (Includes: 7 Tips for Budgeting Without Suffocating)
  5. The Danger of Complacent Saving